Friends with Benefits: Social Capital and Financial Market Participation
Using Facebook friendship data, we find that among three aspects of social capital, Economic Connectedness (EC)—the extent of cross-SES friendships—has the strongest relationship with stock market and saving participation for low-income households. One standard-deviation greater EC is associated with 3.5 percentage points greater stock market participation and 3.6 percentage points greater saving participation. Evidence from childhood friendships and an instrumental variables approach suggests that the relationship is causal. The relationship between EC and participation derives from exposure to wealthy individuals rather than from class-based friending propensities. Further results suggest that EC reduces setup costs, possibly psychic, of participation.
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Copy CitationBrad Cannon, David Hirshleifer, and Joshua Thornton, "Friends with Benefits: Social Capital and Financial Market Participation," NBER Working Paper 32186 (2024), https://doi.org/10.3386/w32186.Download Citation
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